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July 10, 2004: Estate Planning for Same-Sex Couples

Q: Why do we need state and federal laws concerning same-sex marriages? If they just take the time to do so, canŐt such couples basically do the same thing for themselves by doing their own planning?

A: Now, this is not a political column, nor do I claim to be an expert in this area, but permit me to play the devilŐs advocate here for a few minutes.

LetŐs narrow the focus down to taxes and estate planning, looking at those areas first from the federal perspective and then from the stateŐs point of view.

For federal gifting purposes, one spouse can give to the other any amount tax-free (Bill Gates can give his sixty-eight billion dollars to his wife without paying taxes). Otherwise, only $11,000 each year can be given to a person without subjecting the amount of the gift over $11,000 to federal gift taxes, unless the $1,500,000 current lifetime exclusion is used. Thus, same-sex couples lose the flexibility provided traditional couples.

For inheritance purposes, one person can pass on $1,500,000 tax free. But if a "legal" spouse is present, through the use of a tax will or a tax living trust, $3,000,000 can pass tax free. The use of this approach would also permit $3,000,000 to pass on to the deceasedŐs beneficiaries without the new "spouse" ultimately gaining direct control of any part of the assets (assuming a nuptial agreement was also in place) through the use of an "A Trust" and a "B Trust" in either the Will or the Living Trust. In less than a year and a half, the combined figure goes up to $4,000,000. Thus, the tax laws can be used to insure that double the federal exemption can pass to the deceasedŐs beneficiaries.

Currently, there is nothing directly available to provide for this kind of tax savings for a same-sex couple.

On the income tax side, there are a number of similar inconsistencies between a recognized married couple and a same-sex couple. For example, unless the income of each person is approximately the same, the inability to file a joint return seems the most significant to me. (Space limitation prevents the discussion of other areas of the income tax laws.)

The same kinds of problems would also appear on the state side of the issues as for gift, estate, and income tax treatment. Even if the federal rules are changed (in the absence of a constitutional amendment), individual states would not have to follow the federal lead for state tax purposes unless the Supreme Court mandates it. Thus, it would be possible to have a federal way of doing things and a checker board of procedures when dealing with the individual states.

For inheritance purposes, without a Will, intestate laws would not include a same-sex partner. Only through a Will could such a person be remembered. As for other inheritance issues, unless a state changes its laws, a same-sex partner does not have the same rights to protect himself or herself such as through the use of the elective share to try to prevent him or her from being disinherited (or under remembered) in the absence of a nuptial agreement. There are many additional areas such as the priority position to be appointed the deceasedŐs personal representative, etc., but again, space limitation prevents a more comprehensive review.

Quickly skipping from inheritance to medical issues, such threshold areas as seeing the hospitalized person, being kept informed, or making medical decisions have been denied to a same-sex partner. It is true that a medical power of attorney can be executed giving these rights, but even here I have encountered resistance in the medical community to accept these legally binding designations.

I know I have just scratched the surface as to why this current debate is so important. Regardless of which side you are on, very significant legal areas need to be considered and acknowledged as areas of concern.

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